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Digital options under scrutiny by regulators

by Staff Reporter
12 Mar 2019 at 15:05hrs | Views
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Digital options is highly attractive because of perceived simplicity. You just have to predict whether the value of an underlying asset will increase or decrease. This is similar to traditional forms of investing; however, you have less time to make a prediction. For instance, there is a 30-second 'turbo' option.

Traditional investment options are tightly regulated. For instance, brokers have to tell you that there is a chance of loss. Plus, they need to have funds available to protect the investments of their customers in case they go bust. On the other hand, a significant portion of the digital options industry put morals and ethics on the side. Some platforms are heavily marketed as win-win. Affiliates are paid huge sums per customer registration.

When money is involved, rules can get thrown out. Scammers took advantage of the industry to set up fake websites, collect deposits and then disappear. This leaves thousands of customers out of pocket and reduces trust in the industry.

Digital options is legal in the United States; however, it is tightly regulated. Brokers need to meet a list of requirements, some of which are:

- Need to be based in the US and receive approval to solicit American customers
- Brokers can't profit because a customer lost
- Customers must be able to withdraw their funds at any time via wire or ACH

Some brokerages intentionally go against all of these core rules. As a result, they have had to move their operations overseas to countries such as Cyprus and the Bahamas. Unfortunately, most customers don't do their due diligence before signing up. The promise of huge profits and a millionaire lifestyle can be alluring when huge returns are suggested.

Sadly, 'influencers' and celebrities were keen to promote brokers without also doing their due diligence. The fact is that, on average, more than 80% of digital options traders fail to make a return. Reputable brokers display their percentage on the homepages of their websites.

The perceived ease of digital options means that it attracts people who don't know how the markets work. With minimum deposits as low as $10 and bonuses for first time users, some don't bother to learn. This is rather unfortunate because there is some excellent help available.

Digital options has been likened to gambling because the cost of entry is low; however, investors can be left chasing their losses. The potential for huge returns leaves customers investing more money. This is similar to a gambling addiction. Addicts yearn for the rush of a win. Arguably, some options brokers borrow similar graphical elements and marketing strategies as gambling sites.

When investing in shares, one has the time to research a company and perform fundamental analysis before making a purchase decision. On the other hand, in digital options, the most profitable trades provide 30 seconds to make a decision. Experienced digital options traders focus on a few derivatives, and are therefore able to make better data-backed decisions.

Interestingly, cryptocurrency grew in popularity at a similar time to that of digital options. Fraudsters soon spotted an opportunity. They set up digital options platforms which only accept cryptocurrency. This way they could remain relatively anonymous and steal millions of dollars of cryptocurrency.

When one considers the low-interest rates provided on 'safe' investments and the economic uncertainty, it is little wonder that people are so attracted. I still think that people can make significant returns from options, but they must be armed with the right knowledge and tactics.

The European Securities and Markets Authority (ESMA) has moved to ban digital options in the EU. They believe that there is a high risk of investors losing money through digital options. However, there are other high-risk investments and activities which are still active.

Like in any industry there are those who play by the rules, and there are those using fraudulent tactics. I think governments should be focused on educating the public on how to carry out due diligence online. There are fraudulent forms of every business venture online.

Israeli based firm, Yukom had a case opened against them by the FBI due to alleged underhand tactics. It is alleged that their customer service reps pressured customers into making large deposits. This is because they received a commission for every deposit. Apparently, they also broke every rule in the book when it comes to operating a brokerage.

As previously insinuated, regulating the digital options market and putting blanket bans won't do much. Fraudulent platforms can hope from one domain to the other or move to the dark web. There are legitimate digital options platforms. Here are some signs that you have found a legitimate platform:

- They state the percentage of losing investors on their homepage
- You are reminded that losses are possible and common
- They offer a practice trading platform
- The territories they can operate in is clearly shown on one of their pages
- There are several ways to withdraw money

Generally speaking, if a broker allows you to make deposits using cryptocurrency, they are more likely to be fraudulent. This is because it enables them to operate anonymously. If your cryptocurrency gets stolen, you have little legal recourse. This is because they aren't recognised as money or a store of wealth in most countries around the world.

To conclude, the digital options industry has some fraudulent operators. However, I challenge you to name one industry which doesn't have people using illegal tactics. The key is to make sure that the general public knows how to spot illegal websites. Moreover, like with any investment product, knowledge is wealth. Go into digital options without the proper research and you are likely to make huge losses.

Source - Byo24News